By Jamie Freed
THE headline price of mining group BHP Billiton's $US86 billion ($118 billion) hostile takeover of Rio Tinto is not the only big number involved. Yesterday BHP estimated it would pay $US4.4 billion in fees to bankers, lawyers and accountants.
If the deal is successful - on the present timeline it is expected to be completed in the second quarter next year - BHP will have employed a team of advisers for nearly two years. It will also be forced to pick up the tab for Rio's equally big advisory team.
Each company has amassed a team of at least eight global investment banks to help advise on the complex transaction. BHP's lead advisers are Goldman Sachs JBWere and Gresham, while Rio is relying on Morgan Stanley and Macquarie for its primary advice.
In a US regulatory document filed yesterday, BHP said $US4.4 billion earmarked for fees included $US800 million associated with a $US55 billion loan facility BHP had arranged with seven international banks.
The huge loan package will refinance debt associated with Rio's Alcan acquisition and contribute to a proposed buyback of up to $US30 billion of shares after BHP completes the deal.
But while the $US4.4 billion in transaction fees - more than the market value of miner OZ Minerals - appears high, BHP has estimated it will save $US3.7 billion each year by combining the operations of the two companies.
Yesterday BHP revealed it would have saved $US856 million after tax last year simply by consolidating the ownership of the Escondida copper and Richards Bay mineral sands joint ventures between the two companies.
It also expects that by combining operations such as their neighbouring Yandi mines it will be able to produce an extra 70 million tonnes of iron ore a year from the Pilbara beyond the companies' expansion plans. A pro forma income statement indicated Rio would have earned 42 per cent of the combined company's profits in the financial year that ended June 30 - just short of the 44 per cent of the combined company on offer - but the Rio profit figure included extraordinary items such as $US1.5 billion in after-tax profits from asset sales.
Discounting the asset sales, Rio contributed less than 40 per cent of the profits of the merged company.
BHP warned that those estimates were imprecise because Rio had refused to provide non-public information about its accounts. BHP said there had been no substantive communications between the companies since Rio rejected its 3-for-1 takeover proposal last November.
In the US filing, BHP spoke positively of Rio's aluminium division but excluded any mention of Rio's Simandou iron ore project in Guinea, which has faced political opposition.
BHP said it would replace Rio's board - including its chairman, Paul Skinner - once it achieved acceptances from a majority of Rio investors. But if it did not gain control of 100 per cent of Rio, it would appoint two independent directors to the target's board.